News Feature | January 13, 2014

Utility May Increase Rates For Urban Customers To Pay For Rural Upgrades

Water utilities in Pennsylvania are permitted to try a controversial new approach to rates.

The new structure allows utilities to "increase water rates of urban customers to subsidize wastewater systems in mostly rural areas," the Times-Tribunereported.

This structure was not always permissible. It "would have been illegal until the state legislature passed, and Governor Tom Corbett signed, Act 11 of 2012, upending long-standing principles of ratemaking: customers pay for their own infrastructure," the report said.

Why the new approach?

The amendment to the Public Utilities Code was written "as rural communities found themselves with ailing and failing generation-old sewer systems that posed a threat to health and welfare," the report said.

That meant a small number of rural users were on the hook for large rate hikes.

But now the state is empowering utility companies "to charge all customers...to pay to rebuild those small systems," the report said.

Not everyone loves the idea. An editorial in the Times-Tribune said the rule "promises to further burden urban residents."

"Worse, it encourages urban sprawl against the broader interests of urban communities, by requiring urban water customers to pay for required rural sewer systems," the op-ed said.

The state is feeling out the new rules in the case of Pennsylvania American Water.

"The company's proposal is the state's first utility case using provisions of a 2012 state law allowing water and wastewater companies under a unified corporation to allocate some wastewater costs to the combined customer base," according to a previous report in the Times-Tribune.

A spokeswoman for the company explained the rationale.

"One small group of customers would not be faced with that burden for a major capital project," she said. "It's such a minimal amount to the water customers, about 1.5 percent to the increase in their bills, or equivalent to about 87 cents a month."

For more on the financial decisions of water utilities, check out the Utility Management Solution Center on Water Online.

Do you think it's fair for urban customers to subsidize rural ones? Sound off in the space below.